Aussie tipped to stay strong after Greece boost

Business Reporter

The Australian dollar is on course to remain strong, analysts say, after it nudged towards the $US1.05 mark on Tuesday following the Greece bailout deal announced by eurozone finance ministers.

The Aussie reached as high as $US1.0492 about midday, up from $1.0452 late on Monday and continuing an upward trend over the past two weeks.

“It's come about because of an improvement in the global economic cycle that started with the release of the China HSBC PMI data for November,” ANZ currency strategist Andrew Salter said about the Aussie's rise.

“[The data] showed the first expansion in manufacturing activity for a number of months and that suggested that one of the biggest drivers of the world economy was basing. That basing in global momentum has been similarly reflected in Germany, another major driver of the global economy.

“The Ifo survey, which was released last week, suggested that business activity had picked up in November as well, and with a growing sense that the downturn in global economy activity has either moderated or come to a halt, currencies that are sensitive to the global economic cycle, like the Australian dollar, are appreciating.”

Economist Stephen Koukoulas said the dollar could continue to rise to $US1.08 in the next few months.

“Certainly we've had commodity prices no longer falling, particularly iron ore and others have actually moved well above the lows that we saw in October," he said. "We are getting job creation and unemployment is still below 5.5 per cent. There is evidence that housing construction is turning up.

“So in a sense all that points to the fact that maybe even if we do get a rate cut next week, we are not going to get many more rate cuts after that, and because of the slightly better tone in some of the Chinese economic news, the US does look to be a little bit better as well.

“Australia has its triple-A credit rating, which is a huge attraction for many global investors now, so if we do get through the next couple of months, the numbers are OK, if straight differentials remain where they are, commodities and the global economy even just look a little bit better, then of course the money will continue to flow into Australia, and therefore we get another 3 or 4 cents move on the Aussie.”

CBA currency strategist Joseph Capurso dismissed Saxo Bank chief economist Steen Jakobsen's warning that Australia could face a recession within two years unless both interest rates and the Australian dollar fall sharply, saying that "if the Australian dollar was really going to send the economy into recession, it would have happened already and it's clearly not happened".

"I think the Aussie is going to stay at quite strong levels," he said. "The fact is the Australian economy is in quite good shape. And you can see that because the unemployment rate is about 5.5 per cent.

“The high value of the Australian dollar reflects a lot of good things happening in Australia, as well as a lot of the bad things happening outside of Australia like very high unemployment in the US and in Europe."

Mr Salter said he expected the RBA to maintain an easing bias, as the major exchanges rates around the world remained low.

"What that means for countries with an open economy and with an open capital account ... is that their exchange rates are appreciating above and beyond what they would normally do, and as a result, domestic policy has to be slightly easier in order to maintain growth consistent with their inflation targets," he said.

"So this is an interesting theme that’s been played out in the global economy at the moment. It’s one of the reasons why our economics team have been suggesting that the RBA will maintain an easing bias and it’s also one of the reasons why we expect the Australian dollar to remain high."